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China Stocks in Balancing Act

It was a struggle but stocks in China gateway Hong Kong on Thursday maintained a toehold above a prominent resistance level. The question now is whether China stocks slip back or build on recent gains.

Hong Kong’s Hang Seng Index has already retreated from the key 21,000 level once this week. It soared above that barrier early Monday but by the close Tuesday was at 20,699.

Wednesday the Hang Seng barged slightly over 21,000 , but fell by as much as 200 Thursday morning as Chinese January inflation figures came in discouragingly high.

January’s CPI rose to 4.5% from 4.1% in December. Many analysts had expected an increase due to a rise in food prices associated with the Chinese New Holiday, but the substantial rise fueled worries China would at least temporarily pull back from its recent credit-loosening policy.

A rebound in China’s A-shares helped the Index claw its way back above 21-000 by the close – barely.

The Hang Seng closed down 0.04% at 20,010 in very heavy turnover. The index of Chinese companies fell 0.3% to 11,669.

“Whether we can sustain 21,000 depends on the Mainland stock market,” Conita Hung, head of equities at Delta Asia Financial, told Equities. “Hong Kong has accumulated a lot of gains, and investors are hesitant. But if the A-share market keeps rising we likely will remain above 21,000.”

As the market balances at 21,000, investors have lost their appetite for large cap stocks and are turning to laggards, Hung said. She said examples are the gambling, food and sportswear and equipment sectors. End

Chinese Stocks in the U.S.: +7.2, 412.1, 02-08-12, Bank of New York Mellon, ADR Index-China

Insight: Hong Kong blue chips fell by as much as 200 points Thursday morning after release of high Chinese January inflation numbers indicated China would slow its recent credit-loosening moves. A rally on Mainland exchanges helped Hong Kong to rebound just over the key 21,000 level. China's Bank of Communications (BCMXY) fell 2.5% after a report surfaced that it would raise funds. KGI Research

Chinese Companies to watch: "While we remain in the downswing of the cycle, we maintain our positive view on Country Garden (2007.HK) and CR Land (1109.HK).

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For a list of Chinese companies sold in the U.S. and information on each company go to http://www.adrbnymellon.com/dr_country_profile.jsp?country=CN

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